Top RIA Compliance News Articles for the Week of September 24, 2016

1. SEC Gets Staff Recommendation to Allow Third-Party Exams (Author- Mark Schoeff Jr., InvestmentNews)

Mark Schoeff reports on the progress the Securities and Exchange Commission (SEC) is making on possibly allowing third-party examinations of investment advisers. On Tuesday, SEC Chairwoman Mary Jo White announced the agency has decided to progress with the consideration of this rule. She also notes the agency has been working on “targeted hiring” in the RIA exam area. It is reported that currently the SEC only examines 10% of registered investment adviser firms annually. Increasing the RIA examination rate is a top SEC priority.

2. SEC Fiduciary Rule Not Coming ‘Any Time Soon,’ Chairwoman Says (Author- Andrew Welsch, Financial Planning)

SEC Chairwoman, Mary Jo White, once again confirmed at this week’s Securities Industry and Financial Markets Association (SIFMA) annual conference that the current SEC commissioners have different views on moving forward with a uniform fiduciary rule. Furthermore, given the agency is currently lacking two commissioners, Ms. White believes the rule will “not be happening anytime soon.” Chairwoman White also emphasized that while the SEC will try to coordinate its efforts with the Department of Labor (DOL), “we don’t enforce their rules, obviously, they do.”

3. How Regulatory Requirements and Service Standards Will Affect Your Practice Size (Author- Matthew Reynolds, Wealth Management)

Matthew Reynolds discusses “four basic tenets to manage qualified assets going forward” that he believes advisors should implement in order to comply with the new DOL fiduciary rule. Step 1 is to “identify the client’s Investment Objective (“IO”), then define what that means”, step 2 is “align all investments in that IRA to meet the IO”, step 3 being “document your advice” and then lastly “review every IRA, then see 1-3 above.” Reynolds also presents the case that “with a new minimum standard, it is vital to your practice that you limit the total clients you take on.” 

4. Interesting Angles on the DOL’s Fiduciary Rule #21 (Author- Fred Reish, FredReish.com)

Fred Reish, one of our top 5 DOL fiduciary rule experts to follow, continues his series on “Interesting Angles on the DOL’s Fiduciary Rule” with his twenty-first article. Of particular note for RIA firms looking to utilize the level fee exemption when advising on IRA rollovers, Reish makes the observation that “if an adviser cannot obtain enough information to formulate a prudent recommendation, the adviser needs to abstain from making a recommendation.” In particular in regards to analyzing and documenting what may or may not be in a client’s best interests, Reish further notes that “if the adviser cannot obtain adequate information about the investments, expenses and/or services in the plan, it would be difficult, if not impossible, to make and document that analysis.”

5. Why More Advisers Are Choosing the RIA Route (Author- Mark Elzweig, Financial Planning)

Since the announcement of the Department of Labor’s (DOL) fiduciary rule, Mark Elzweig writes that there has been increased interest from independent broker dealer (IBD) reps looking to start their own RIA firm. Elzweig notes that the financial incentives of owning their firm and receiving 100% payouts coupled with the the DOL fiduciary rule driving more advisors towards a fee-only business model is accelerating the transition to the independent RIA model. Ultimately, Elzweig believes that, “it is too early for this year’s data to show the numbers, but anecdotally it is clear that the fiduciary rule is giving new energy to the RIA model.”

Don’t forget to check out last week’s top RIA compliance news articles on advisory firms underestimating cybersecurity risks and common advisor myths about the DOL fiduciary rule. Be sure to check back next Friday for next week’s top articles!